US/UK tax planner recommendation
Hi All,
I currently own a flat in the UK and recently purchased a house in the USA. I am in a position where I am going to be helping my sister purchase a house in the UK where she cannot get a mortgage herself so my plan is to buy it, rent it to her and in the end work out an arrangement for her to own it. I'm also conscious my parents are not getting any younger and one day I will one day have some inheritance to work with. Essentially I see there are a lot of options including trusts to do this but I was looking to work out the most tax effective method to do this and wondered if anyone had any recommendations on a tax planner that was familiar with US/UK taxation? Any help/recommendations would be greatly appreciated. Thanks |
Re: US/UK tax planner recommendation
Issues to consider include:
I have no experience of trusts. |
Re: US/UK tax planner recommendation
There are a LOT of pitfalls in the idea to rent a flat to your sister. Unkess you rent at a market rate, you risk the IRS questioning its status as an investment, and if your sister defaults on her rent, would you really kick her out? And then "giving" her the flat creates a gift/inheritance tax issue.
All things considered, I would strongly recommend an alternative way to help your sister. |
Re: US/UK tax planner recommendation
Originally Posted by Aoi
(Post 11976459)
Issues to consider include:
I have no experience of trusts.
Unfortunately having a mortgage in her name is not a possibility right now. It may be in the future and I can switch it before its paid off but for now its not possible.
Originally Posted by Pulaski
(Post 11976487)
There are a LOT of pitfalls in the idea to rent a flat to your sister. Unkess you rent at a market rate, you risk the IRS questioning its status as an investment, and if your sister defaults on her rent, would you really kick her out? And then "giving" her the flat creates a gift/inheritance tax issue.
All things considered, I would strongly recommend an alternative way to help your sister. Given the fact I need to place a 30% deposit down to get the commercial loan then my monthly payments are substantially lower than the market rent. So my plan is to keep it in a bank account so if she does stop paying for whatever reason then there will be enough money there to weather the times and move her back in with my folks. Knowing my folks I would rather pay my rent than be living back with them :thumbsup: |
Re: US/UK tax planner recommendation
Originally Posted by Aoi
(Post 11976459)
Issues to consider include:[LIST][*]Loss of UK Private Residence Relief if the home is not owned by your sister
However, you will be entitled to full relief 1 where all the following conditions are met: • the dwelling house has been your only or main residence throughout your period of ownership, and • you have not been absent, other than for an allowed period of absence or because you have been living in job-related accommodation, during your period of ownership • the garden or grounds including the buildings on them are not greater than the permitted area, and • no part of your home has been used exclusively for business purposes during your period of ownership. Once she buys the house from me she she will meet all the above criteria and as I would be selling it a loss there would be no CGT? |
Re: US/UK tax planner recommendation
Selling at a loss, i.e. not at an arms length price (I think that's what you mean) may open up an can of worms regarding the possible appearance of tax evasion (as you are selling to a relative), as well as potential gift tax and inheritance tax issues. ...... Like I said above, what superficially looks like a great idea has many facets and potential pitfalls.
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Re: US/UK tax planner recommendation
Originally Posted by Pulaski
(Post 11976620)
Selling at a loss, i.e. not at an arms length price (I think that's what you mean) may open up an can of worms regarding the possible appearance of tax evasion (as you are selling to a relative), as well as potential gift tax and inheritance tax issues. ...... Like I said above, what superficially looks like a great idea has many facets and potential pitfalls.
I was advised there would be no US tax on initial inheritance as neither parent is a US citizen. But if the inherited asset generates an income then I would be liable on the tax for that income. |
Re: US/UK tax planner recommendation
Originally Posted by DottM
(Post 11976622)
Yes, that's why I wanted to see if anyone could recommend a good tax planner. I spoke with one this afternoon that said it wouldn't be an issue being a family member. I'd like to get a second opinion just to be sure.
I was advised there would be no US tax on initial inheritance as neither parent is a US citizen. But if the inherited asset generates an income then I would be liable on the tax for that income. |
Re: US/UK tax planner recommendation
Originally Posted by Pulaski
(Post 11976626)
Inheritance taxes in the US are also levied at the state level by a few states. Another thread discussed this a few days ago, and I think there are four or five states that have an inheritance tax, but apart from NJ, I don't recall which ones do.
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Re: US/UK tax planner recommendation
Originally Posted by DottM
(Post 11976604)
As I understand this she would qualify for the relief once she owns the house under the following exemptions:
However, you will be entitled to full relief 1 where all the following conditions are met: • the dwelling house has been your only or main residence throughout your period of ownership, and • you have not been absent, other than for an allowed period of absence or because you have been living in job-related accommodation, during your period of ownership • the garden or grounds including the buildings on them are not greater than the permitted area, and • no part of your home has been used exclusively for business purposes during your period of ownership. Once she buys the house from me she she will meet all the above criteria and as I would be selling it a loss there would be no CGT? Good luck whatever you decide. |
Re: US/UK tax planner recommendation
Originally Posted by Aoi
(Post 11976863)
But, if there is a gain, you would be liable to UK CGT when you sell the house unless occupied by a dependent relative. New rules render non-residents who dispose of UK land liable to CGT on gains from 6 April 2015. HMRC Capital Gains Tax Manual (CG14530) states: But in certain circumstances the consideration which actually passes between the parties to the transaction is ignored. Instead, the consideration is deemed to be equal to the market value at the date of disposal of the asset disposed of.
Good luck whatever you decide. |
Re: US/UK tax planner recommendation
John Castro is amazing. And super expensive. But worth it to us.
International Tax Attorneys in Miami & Washington D.C. |
Re: US/UK tax planner recommendation
I vaguely remember that there are some differences in a 1031 exchange if you sell to a relative. You may want to consult a 1031 expert. They will quite often talk to you for free.
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